“Our guidelines were crafted with the goal of ensuring that short selling transactions are transparent and effectively monitored.”
The Securities and Exchange Commission (SEC) has approved Philippine Stock Exchange Inc. (PSE) proposal to introduce short selling in the stock market.
Short selling is in place in several exchanges and is utilized by investors as a hedging mechanism.
Under the scheme, an investor borrows stocks from a broker, and immediately sell these at its current market price.
“We are grateful to the SEC for approving the guidelines for short selling. We are optimistic that this facility will lend support to our securities borrowing and lending program and help improve liquidity in our market,” PSE President and CEO Ramon Monzon said.
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The approved implementing guidelines for short selling transactions include provisions on eligible securities, procedures for short selling transactions, and the execution of short selling orders, among others.
Stocks in the PSE index (PSEi) or blue chips and exchange traded funds are only those considered eligible for short selling transactions.
For eligible securities, only 10 percent of its outstanding shares can be shorted. The limit acts as a safeguard for the orderly conduct of short selling activities, while still providing ample room for price discovery.
Meanwhile, in executing short selling orders, trading participants will have to ensure that the client has entered into the necessary securities borrowing arrangements prior to entering a short selling order. Such borrowing arrangements must adhere to existing SEC, BIR, and PSE regulations governing securities borrowing and lending.
“Since this is the first time we are introducing short selling, our guidelines were crafted with the goal of ensuring that short selling transactions are transparent and effectively monitored. Even with a limited number of eligible securities and a cap on short interest to begin with, we believe that the ability to take short positions will further spur trading activity and attract more investors to our market,” Monzon said,
“Once we launch short selling, investors will be able to employ this tool to help them hedge their portfolio risk,” Mr. Monzon added.
The PSE has outlined activities for various stakeholders in the coming weeks to apprise them of the rules and guidelines for short selling transactions.
